Bank of England leaves rates on hold
By Abigail Townsend
Date: Thursday 01 Feb 2024
(Sharecast News) - The Bank of England left interest rates unchanged at 5.25% on Thursday, as widely expected.
The nine-strong Monetary Policy Committee voted by a majority of six to three to leave the cost of borrowing on hold.
External members Jonathan Haskel and Catherine Mann voted for a 0.25 percentage point increase, to 5.5%, while Swati Dhingra opted for a cut of the same size.
It is the first three-way spilt since August 2008, at the start of the global financial crisis.
While inflation is now well off its peak, it remains above the BoE's long-term target of 2%. The latest data from the Office for National Statistics also showed a surprise uptick in December, to 4% from 3.9% a month previously.
However, most economists still expect the MPC to start cutting rates this year.
The BoE, which has hiked the cost of borrowing 14 times since December 2021, indicated it was prepared to start reducing rates but stressed "more evidence" was needed first.
Andrew Bailey, governor, acknowledged there had been "good news on inflation" in recent months. The meeting minutes also concluded that the MPC would now "keep under review" how long rates should be left on hold.
In contrast, December's minutes warned further tightening in monetary policy could be necessary if there was evidence of more persistent inflationary pressures.
But Bailey also noted: "We need to see more evidence that inflation is set to fall all the way to the 2% target, and stay there, before we can lower interest rates."
His comments mirror those of both the Federal Reserve and European Central bank. Both have signalled that they are willing to cut rates but only once evidence shows inflation is firmly under control.
Samuel Tombs, chief UK economist at Pantheon Macroeconomics, said: "The vote spilt suggests the MPC won't be rushing to reduce Bank Rate soon, but its new language leaves open the prospect of multiple 25 basis point reductions before the end of this year.
"The MPC's new forecasts also signal it envisages multiple rate cuts later this year. Its mode forecast for CPI inflation in two years' time is 2.3%, if it assumes that Bank Rate falls to 4.22% in the fourth quarter of 2024, as markets expected in the run up to this meeting.
"Accordingly we are sticking with our forecast that the MPC will cut Bank Rate by 75bps, to 4.5%, by the end of the year. We still expect the first 25bps cut in May, but the risks remained skewed towards a later commencement."
Anna Leach, deputy chief economist at the CBI, said: "Relatively high wage inflation alongside an uptick in services inflation in December means that a rate cut before the summer is increasingly unlikely to materialise.
"However, this won't stop pressure piling onto the BoE to reduce rates as weakness in the economy persists."
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